Hamburger's U

Daniel Hamburger took his physician father's advice and did not become a doctor. So here's the irony: He now runs a company that churns out more than twice as many doctors as the biggest U.S. medical school  but at a high cost to many unqualified students, some say.

Daniel Hamburger took his physician father's advice and did not become a doctor. So here's the irony: He now runs a company that churns out more than twice as many doctors as the biggest U.S. medical school  but at a high cost to many unqualified students, some say.

As president and CEO of DeVry Inc., Mr. Hamburger is pushing the for-profit education firm once known for TV repair and other technical training programs into high-margin medical education and re-inflating a bottom line punctured by the tech crash.

After buying Caribbean med school Ross University for $310 million in 2003, DeVry now counts on medical education for 15% of its annual revenue of $1 billion, a share Mr. Hamburger wants to double in five years. It's easy to see why: The medical segment's operating margin for the nine months ended March 31 was 33%, twice DeVry's overall figure.

Mr. Hamburger, 44, portrays DeVry as a health care industry white knight battling a chronic physician shortage and jousting with a complacent medical establishment that has kept a lid on the number of new MDs.

"They don't have a strong growth agenda," he says of U.S. medical schools, where enrollment has been stagnant for nearly three decades.

Ross, on the island of Dominica, midway between Puerto Rico and the South American coast, has been very good for DeVry shareholders: Its stock has more than doubled since Mr. Hamburger became CEO in late 2006, outpacing market indexes and the shares of competitors hurt by the credit meltdown.

It also has been good for its licensed graduates, many of whom couldn't get into U.S. medical schools but who emerge from Ross qualified to practice in all 50 states. And it has benefited a U.S. health care system with 8,000 more residency spots each year than U.S. medical schools can fill.

'WE FAIL MORE PEOPLE OUT'

Edward Ruiz was a personal trainer in Detroit and six years out of college when he was accepted at Ross in 2000, before DeVry acquired the school.

Now a physician in Pueblo, Colo., he's grateful for the opportunity, though dismissive of living conditions on Dominica, where there was little to do but study. "It's definitely a third-world island down there, no question about it," Dr. Ruiz says.

Ross hasn't been so good for the one in four students who never graduate, despite shelling out $41,000 in average annual tuition, equal to the tab at top private medical schools such as Northwestern University. Only 72% of Ross students receive a diploma, DeVry says, compared with nearly 100% at most U.S. med schools.

"We fail more people out," Mr. Hamburger says. "That's part of walking away from earnings and revenue in the short term in order to lay the foundation for growth in the long term."

Robert Ross, an oil and grain trader when he founded Ross in 1978, says, "It's still a good school, but it's overcrowded and it's expensive." Now 89, he opened a half-price competitor last week on nearby St. Kitts.

Mr. Hamburger estimates Ross has 3,000 medical students  more than double the 1,200 at the University of Illinois at Chicago College of Medicine, the nation's largest.

This spring, Ross will supply medical residency programs with 595 graduates  up from 362 just two years ago and twice UIC's total.

"We're giving opportunities to students who were wait-listed or denied admission" elsewhere, Mr. Hamburger says. "It's not just some dumb guy who can't get into med school."

RAPID GROWTH

A neatnik who studied industrial engineering and kept every hair in place while hopscotching through assignments at Arthur Andersen LLP, Bain & Co., R. R. Donnelley & Sons Co. and W. W. Grainger Inc., Mr. Hamburger has a habit of tidying up classrooms on campus visits, removing even course handouts left for students.

"I am process-oriented," he says. "The engineer in me cannot be suppressed."

Mr. Hamburger credits Ross' rapid growth to $50 million in capital improvements that triggered a flood of applications. When it outgrew a 306-seat lecture hall, it moved classes to a retrofitted warehouse used in the filming of "Pirates of the Caribbean" sequels.

DeVry's most recent quarterly financial filing attributed increased enrollment at Ross, in part, to "enhancements made to its marketing and recruiting functions." Mr. Hamburger says Ross has nearly doubled, to 100, the number of undergraduate schools where it recruits and increased spending on campus visits and open houses in major cities by 30% to 50%.

Ross students starting this month posted an average score of 24 on the Medical College Admission Test  below the mean of 25 and as low as the 38th percentile of all test takers last year. The average score for students admitted to U.S. med schools is 30.8.

Kathy Fernandez scored a 22 on the MCAT, in the bottom third of all test takers.

Ross admitted the mother of four in 2005. She and her husband sold their California home for $372,000 to finance her long-held dream of becoming a doctor. Now 37, she is returning to teaching with $97,000 in debt after spending about $180,000 on tuition and other Ross-related expenses.

Ross did not allow her to take the first stage of the independently administered U.S. medical licensing exam because on three occasions she failed an exam Ross imposes as a prerequisite, contrary to standard practice at U.S. schools. Ms. Fernandez says Ross forced her to drop out about halfway through the program.

Mr. Hamburger says Ross is clear about its testing policy, disclosing it in the school catalog and brochures. "Students know it from the get-go," he says.

Ms. Fernandez says, "It wasn't clear to me. At the beginning, I didn't know anything more than I had to be there by the 29th."

By screening who gets to take the first step of the medical licensing exam, Ross can advertise a 91% first-time pass rate, approaching the 95% average for U.S. medical schools.

Stephen Wood, who resigned in January as chairman of Ross' physiology department, says the school awards passing grades to students with test scores as low as 55%, "which when I went to school was an 'F', and they call it a 'C'. If I didn't quit, I'd be complicit."

Still, Ross graduates have taken residency training at the Mayo School of Graduate Medical Education, the University of Chicago and other prestigious institutions.

"The average graduate of Ross would be difficult to distinguish from the average graduate of an onshore medical school," says Mark Potter, residency program director in family medicine at UIC, who has hired one or two Ross trainees each year for a decade.

Photo

Daniel Hamburger | Photo: Erik Unger

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